Addressing Channels and the Low-End Market

The Channel Matters

Microsoft Business Solutions (MBS) especially emphasized at Convergence 2005, the company's annual user conference, that the upcoming wave of MBS business management applications will make individual users much more productive. As part of the undertaking, the vendor claims to have conducted extensive face-to-face conversations with over 2,000 business people from around the world and from all walks of life. MBS talked to, observed, and listened to chief executive officers (CEO), marketing vice presidents (VP), sales people, accountants, purchasing managers and clerks, warehouse workers, and so on.

Given that the technology blueprint, however impressive and powerful, is only a part of the total equation, which also includes solutions and the partner channel, MBS has lately also made moves to address these too. The channel has hardly been a picture of immaculate organization so far, with channel partners often competing against each other, while attractive horizontal and vertical add-on products would remain unavailable and unknown to the wider MBS customer base or would remain unsupported by small, resource-strapped value-added resellers (VAR)/independent software vendors (ISV). To remedy these problems, at Convergence 2005, Microsoft announced plans to increase resources and provide new tools and offerings for MBS ISVs and VARs, whereby all efforts are designed to accelerate the MBS Group's partner-driven vertical strategy, providing stronger opportunities for partners to align their services and solutions with their customers' specific needs.

To that end, by the end of fiscal year 2006, the MBS Group pledges to align 50 percent of its existing partners to a vertical solution or service. In addition, field resources and through-partner marketing will be aligned with verticals. While initial efforts will emphasize fourteen verticals within manufacturing, distribution, public sector and services, the MBS Group will continue to provide sales and co-marketing support to a broad ecosystem of partners across many verticals.

To support partners in generating customer leads in their target markets, MBS will provide resources for the field in the areas of demand generation, advertising, sales support, lead management and more, whereby more than 800 MBS team members in the field will reportedly be trained and empowered to help partners succeed in targeted verticals. In addition, the vendor will provide improved tools for the field, including data on vertical opportunities, an improved map of partner solutions, and a vertical business planning guide book, all designed to help partners plan and execute their vertical strategy. The idea is twofold: 1) to help find the appropriate solutions and bring them more into the mainstream of the sales process, and 2) to make sure that channel partners are not competing with each other for the same customers.

This is Part Three of the Is "Sage" Wiser and Better Than "Best"? series.

Specifics for Partners

Microsoft's goal for 2005 is to have aligned half of its existing partners vertically, to have obtained vertical field commitments and training plans from them, and to be well on the way to vertical lead distribution. Specific tools and offerings include the following:

• Vertical Opportunity Map—MBS pledges to provide partners with the data necessary to assess opportunities that exist in specific geographic regions worldwide. This data includes a total count of business entities as well as industry and vertical purchase rates, allowing partners to get a good estimate of the market opportunity in their region or country. Partners are encouraged to use this data in combination with their own data to determine the relative attractiveness of serving a targeted market segment.
  
  
• Solution Finder—To increase the visibility of Microsoft's extensive portfolio of partner vertical solutions, this Web-based tool will be launched in the second half of calendar year 2005 to help customers select industry-specific partner solutions and related MBS financial management, supply chain management (SCM) and customer relationship management (CRM) solutions. In addition, partner account managers can use this tool to help identify opportunities for partners to develop their own intellectual property (IP) or identify opportunities for them to work with other partners to deliver a complete industry-specific solution. Solution Finder will work with data from the Microsoft Partner Program systems to streamline the partner profiling experience.
  
  
• Microsoft's Partner Channel Builder—This combination of an on-line tool and structured worldwide networking events will allow all Microsoft Gold Certified and Certified partners, including partners selling MBS products, to collaborate in an effort to deliver more complete industry-specific solutions. Partners may access the on-line tool at http://www.microsoft.com/partner/channelbuilder.
  
  
• Vertical Lead Distribution—Whereby a vertical lead grid will be incorporated into Microsoft's demand-generation processes to help the field effectively distribute sales leads to partners who have relevant solutions or industry expertise.
  
  
• Industry Builder—This is an ISV initiative designed to deliver industry-enabled enterprise applications that can be further extended into new markets by both VARs and ISVs. As part of the Industry Builder initiative, select ISVs will develop industry modules according to Microsoft's quality standards and package them with a customer support contract that includes both the MBS core modules and the Industry Builder application(s). The initiative is immediately available for ISVs focused on developing industry-specific solutions for MBS Axapta, and will reportedly extend to other MBS applications later this year.

Companies that need a business management suite often find themselves working with multiple solutions from a number of solution providers to meet their specific business needs, which can often result in slower implementation times and, potentially, higher costs. MBS' industry feedback indicates that these customers want a single source for product support and a reliable point of contact from the solution providers they work with. The Industry Builder initiative might fill this customer need by offering a Microsoft support contract that applies to both the MBS Axapta core modules and the vertical application modules that were developed by the participating ISVs. MBS is addressing that demand by combining vertical applications developed by ISVs with the core functionality and deep customization options offered in Axapta.

Ultimately, the Industry Builder initiative should provide customers with a more complete solution while also giving the partner community a more powerful means to compete with other software vendors, as partners can add highly valued consulting in delivering that 'last mile' of vertical-specific functionality, which today is so important for customers.

A year ago or so, Microsoft was encouraging partners to use MBS' nuggets of functionality such as bill of materials (BOM), project accounting, payment processing, or electronic data interchange (EDI) as the foundation for their own solutions. Microsoft advocated that partners either embed these MBS modules right into their own vertical products or customize their solutions in a way that they would only work on top of these MBS modules, but this strategy will now be superseded by the Industry Builder initiative. Microsoft will supposedly not build any vertical applications itself, but this new vertical focus will likely have a long-term impact on how MBS will design and develop its products.

To meet Microsoft's high standards and global business structure, prospective ISVs will be required to demonstrate overall stability, financial strength, and a corporate composition that can deliver application code and provide customer support globally. Their applications must also pass Microsoft's tests for code quality standards. Once ISVs demonstrate that they have the necessary business qualifications and product development standards to participate in the Industry Builder initiative, the MBS development team will work with them to assist with scoping, developing, testing, and technical review of their vertical-specific applications. The industry-specific application code will be owned by the ISVs. Early participants in the Industry Builder initiative are Fullscope Inc. (for the process manufacturing segment), foliodev LLC (for professional services), and Manhattan Associates Inc. (in the supply chain execution [SCE] realm). ISVs may develop applications not only in X++, the Microsoft Axapta native development language, but in any other programming languages supported by the Microsoft .NET Framework.

During Microsoft Worldwide Partner Conference in Minneapolis, MN (US) that took place from July 8 to 10, the vendor further fleshed out strategies around enhanced and expanded resources for partners, including tools and resources to set partners up for success in verticals. During keynote presentations and highly tailored, product-specific sessions at the conference, Microsoft partners learned how the wave of releases and enhancements scheduled for the next year and a half can help them capture additional business opportunities with new and existing customers. Some innovation-driven launches and enhancements highlighted at the event included the next major release of Microsoft Office 12; a real-time collaboration (RTC) Presence Toolkit that will deliver a set of visual controls usable in Visual Studio projects; Windows Small Business Server 2003 R2; the release to manufacturing of Microsoft System Center Data Protection Manager (DPM); and a Microsoft Windows Server System Midsize Business Promotion. These are planned for launch during the next year and a half, in addition to Microsoft's anticipated release of Microsoft SQL Server 2005 and "Longhorn," the code name for the next major release of the Windows operating system.

As for the programs for its channel that Sage/Best already offers or it recently announced at the Insights conference, the vendor's approach is to simply give the channel the best practices experience of its combined membership and teach them how to execute effectively. To that end, much of Sage's channelfocused effort has been to provide partners a broad marketing toolkit and training not just on technology but on effective business management, leadership, salesmanship, as well as consulting and marketing practices. Namely, the Partner Advantage Program is an umbrella program hosting a variety of partner programs to benefit Sage Software business partners. Sage Software channel programs aim to increase partner sales force and revenue numbers through sales and product training and education, hiring assistance, direct financial support, and marketing assistance programs. Recognizing that one program will not fit all business partners, Sage Software offers initiatives and programs to meet the needs of business partners of all sizes, whereby offerings are tailored for each stage of a partner's business—whether starting out or already quite successful—providing a healthy mix of cost savings and growth programs.

As some best examples, last year the company helped 100 of its partners to qualify, hire, and train skilled salespeople, and is repeating the program this year with another $1 million (USD) in direct investment for this program alone to train another 100 field sales executives across 100 different partners. Available to mid market business partners, the 100/100 in 2006 program's goal is to add 100 field-trained sales executives to the existing channel in 100 days. Selected partner organizations will thereby receive $10,000 (USD) each for recruiting, hiring, and training top sales executives, and to subsidize the cost of a lead generation campaign, making the program ideal for established business partners committed to growing revenue and profits.

There is also a Fast Track 100 program that should help smaller business partners develop new skills. Designed to help small business partner organizations make the leap to a formalized sales and marketing strategy focused on new customer acquisition, Fast Track 100 offers sales and consulting training, lead generation support, partner benchmarking, mentoring relationships, and support for developing a custom sales and marketing plan. Business partners thereby receive $8,000 (USD) value in direct training and service benefits for the $5,000 program investment. In addition, business partners can fully recoup their $5,000 (USD) investment through credits earned by new customer acquisitions. In other words, partners can invest $5,000 (USD) to receive sales and consulting training, lead generation tools, partner benchmarking, custom sales and marketing plans and mentoring relationships. For each new customer acquired, Sage will then rebate $1,000 (USD) back to the business partner until the $5,000 (USD) investment is recouped.

Best has traditionally provided a wide range of what it calls "turnkey" Sage Channel Marketing Programs that business partners can use to deliver professional marketing, and the company has added several new components including turnkey web site creation, e-marketing services, and even a business benchmarking service so that partners can get a clear picture of how effective their business runs in comparison to industry averages. The company established a marketing alliance program whose members get the assistance of a marketing advisor to help develop and execute marketing plans. In addition, leadership camps and mentoring programs provide partners with unique services. Together, these programs should create a powerful opportunity for partners to develop long-term success. Best recently introduced new turnkey programs to help business partners market more efficiently, including the Direct Mail on Demand and Turnkey List program and seminar kits. Each turnkey program provides automated marketing tools, including pre-designed and customizable templates, presentation content, scripts, planning checklists and more, all designed to give business partners instant access to proven, successful marketing programs.

Also new to Channel Marketing Programs is a monthly educational Web series, Marketing 101, which is a two pronged educational resource that teaches business partners the value of proactive, targeted marketing programs while familiarizing partners with the extensive on-line marketing resources Sage makes available. These webcasts cover fundamentals to more advanced marketing concepts and often include guest presenters for expert coverage of specific topic matter.

The company is also creating a Sage Consulting Academy to complement its existing Sales Academy to fund training of consultants working for solution providers The creation of the Sage Partner University tops a list of new training and educational opportunities designed to increase revenues for business partners. Last but not least, Saving Money with Sage extends corporate resources and leverages strategic vendor relationships to pass along significantly lower negotiated rates for products and services critical to partner success. Sage recently added seventeen new offerings such as wireless and teleconferencing phone services, trade show booth rentals, leasing, advertising, web site development, shipping, and hardware purchases.

The Low-End Endeavors

As for the not-to-be-neglected low-end of the market, Microsoft has been ramping up the marketing campaign for the upcoming Microsoft Office Small Business Accounting product, which is going to be part of the Microsoft Office Small Business Management Edition, and initially available only in the US. The product was mutually developed by the MBS and Microsoft Office teams as a part of a nearly two-year effort code named Project Magellan, with the idea of a common Outlook-based user interface (UI) supporting accounting applications and office automation needs.

Thus, the upcoming Microsoft Office 12 release will add a new product, Microsoft Office Small Business Accounting, to the current core set of programs included in Office 2003. The new software is designed for small office/home offices (SOHO), which typically have up to five users. Further, the update of Outlook 2003 will be integrated with Business Contact Manager, the personal information management product with basic CRM functionality such as contact management and order management, which Microsoft first rolled out as part of Office Small Business Edition 2003. Together with the contact manager, Outlook should provide a richer sales and marketing experience by offering such tools as a viewable history of tasks for each client, reporting capabilities, and contact information for all those working with or on a specific account.

These two products can be used in tandem to support a small business with up to twenty users. Integrated payroll services are also part of the package, as Microsoft is partnering with Automatic Data Processing (ADP)'s Small Business Services, as to present users with "tightly integrated self-service and fully outsourced payroll services, including signature-ready tax forms, integrated checks and other on-line forms, as well as support for direct deposit."

Microsoft has to be in the small business market, which is a springboard or a feeding ground for more scalable products as these businesses grow over time. With an installed base of over 3 million Office users, Microsoft hopes to cut into competitors' market share. Fierce competitors like Best (including ACCPAC) and Intuit, owing to their respective Peachtree, Simply Accounting, and QuickBooks entry-level accounting products, benefit from huge migration feeder bases, and are thus able to cut the air supply' for the likes of MBS and SAP, that is, those small businesses that migrate from retail, inexpensive (i.e., $300 [USD] or less) products to more functional and scalable mid-market products. MYOB would be other notable, albeit somewhat fading like provider in the US, while Simply Accounting is solidly entrenched in Canada.

The upbeat segment leader Intuit recently announced its QuickBooks 2005 line of products, and among the pieces that generate quite a bit of income for the vendor is its payroll service. To that end, Intuit unveiled a new payroll service, QuickBooks Enhanced Payroll Plus, which features automatic completion of state and federal forms, workers' compensation tracking, automatic upgrades of QuickBooks financial software, and up-to-date tax tables. Intuit also launched its first payroll service designed for accountants, Enhanced Payroll Plus for Accountants.

Nevertheless, for its part, Sage/Best Software is still number one in this segment in Canada, where it has been since its inception, annually beating QuickBooks handily in that market. Best's Peachtree is second in market share to Intuit in the US, and continues to deliver aggressive upgrades and a vertical industry approach that was recently broadened to include new versions for construction companies and non-profits, in addition to upgraded versions for general businesses, accountants, manufacturers and distributors. Namely, the Peachtree by Sage 2006 product line offers an enhanced feature set across the entire product line including on-line banking, Peachtree Bill Pay, and an internal accounting review feature, which allows small businesses to have even greater control and visibility to their business data. While Microsoft has consistently failed to penetrate the entry level over the past years, delivering then retreating on products such as "Profit" in the early 90s, Sage Software has more than twenty years of upgrade experience behind its products.

Moreover, of all these, Best has achieved the largest success in the upper level of the market, where Intuit, although with nearly 80 percent market share in retail SOHO accounting products, has only been making nascent strides in the enterprise space and in the equivalent channel ramp-up. On its side, Best Software offers multiple flavors of small and medium enterprise (SME) systems to accommodate varying needs across the range of company sizes and industries, with an attempt of clearer delineation and less internal competition between the products. These start with low-cost desktop' solutions like Peachtree and ACT!, both sold primarily through retailers as well, like Microsoft Office. While nobody will dispute Microsoft's brand equity, Best could find its consumer product equivalent in the ACT! contact management product, which has long been beloved by the salespeople who use it.

Ever since Microsoft failed to buy Intuit a decade ago, it has many times gone after Intuit's core markets, but with limited success. For example, Microsoft Money competes with Intuit's Quicken in the personal finance market, but it has not replaced it despite coming free, bundled with Office. And Microsoft has made several other forays into the small business accounting (SBA) market over the years, mostly by licensing programs written by other developers. Through the Navision acquisition, it has even inherited the C5 product, a popular local Danish SBA product with accounting, project management, payroll, and e-commerce capabilities, with nearly 60,000 copies sold and the retail price of about $300 (USD). Still, it has taken Microsoft around ten years to build what it wanted to acquire then.

SBA Market Potential

The potential number of users of SBA packages is humongous, whereby some estimates put the number of small businesses at approximately 25 million. Around 3 million are currently QuickBooks users, with approximately another million using some other small-business accounting package, which leaves close to 22 million companies using some combination of paper, fax, spreadsheets, and word processors—all seemingly low-hanging fruit. Hence, Microsoft's new offering is likely aimed at small businesses currently using a combination of Excel, Outlook, and Word to manage their finances. Although Microsoft favors the idea of converting some QuickBooks or Peachtree users to the upcoming Office-based SBA system, the vendor is more likely to gain "green-field" users by selling the add-on to existing Office users who do not yet have an accounting program installed.

In any case, the channel will be of critical importance for Microsoft's endeavor, and it expects personal computer (PC) companies, with the software pre-loaded on the PCs, to be the primary channel for at least the first year or so. Further, in April, officials at Microsoft said that ISVs would play a key role in the planned fall launch of Microsoft Office Small Business Management Edition, as already seen with ADP. To help ISVs promote and integrate with Microsoft's new application, the company has set out a roster of resources available for its ISVs: free product testing, in-the-box promotion, on-line catalog inclusion, development support, marketing support, and customizable marketing templates.

Another feature for ISVs is the software development kit (SDK), available now, to encourage and assist them in integrating their existing products and creating new ones within the SBA software. In addition, the SDK will help them set the language from C# to whatever code they prefer. According to Microsoft, every map is open, whereby every vertical to horizontal area is available and is an opportunity. However, the only one of the maps that remains closed is security, which was built-in at a database layer, and which remains far more secure than at any application layer.

This concludes Part Three of the Is "Sage" Wiser and Better Than "Best"? series.